John Buckingham has seen just about every type of stock-market environment in his three decades as a money manager. As a rule, he urges long-term investors to be patient.

But he’s also quick to enter pockets of the market that have been hit especially hard during the spread of the Covid-19 strain of coronavirus.

Buckingham, 54, says the cruise industry is one such opportunity, despite its obvious difficulties as the virus spreads. That is because of the increasing popularity of cruises among an aging population.

“Redeployment of Asian ships can work for a while, then you cut pricing and people are unlikely to go. So you may have one or two quarters where you have much lower revenue,” Buckingham said during an interview Feb. 28. “The question is three to five years from now. In the fullness of time, my belief is people will get back to cruising.”

Buckingham is the editor of the Prudent Speculator — a newsletter with a 13.9% average annual return through Jan 31, compared with an average return of 10.2% for the S&P 500 SPX, +4.60%, according to the Hulbert Financial Digest. He is also a portfolio manager with Kovitz Investment Group, which has about $5 billion in assets under management. Buckingham’s style is to select value stocks, with most paying dividends, and to hold them for at least three years, or as long as their prices appear to be attractive relative to intrinsic value.

Soothing words and statistics

“We have been reminding people that volatility is normal,” Buckingham said, adding that some investors had difficulty adjusting after enjoying such a good 2019, when the S&P 500 returned 31.5.% (with dividends reinvested).

On Feb. 26, Jason Zweig wrote in The Wall Street Journal that professional investors have to sell stocks during sharp downturns, while individual investors don’t. If you are an index-fund investor, you might be tempted to try to time the market by jumping out during a time of turmoil and then buying back in after the market hits bottom. The problem with this strategy for a nonprofessional investor is that you might come back in too late to enjoy a significant gain. You might even think it is too late, that stocks are too expensive and then miss out on subsequent gains after the market returns to its previous record level.

“People are trained with the flight gene. That’s what kept early man alive and it is human nature. So we try to stay on an even keel and be unemotional. That is why we have jobs,” Buckingham said.

Here is data compiled by Buckingham and his staff, showing 34 corrections of 10% or more for the S&P 500 since the Prudent Speculator was launched in March 1977, along with subsequent rallies:

Kovitz Investment Group.

You can see that the average increase is far larger than the average correction. It’s never easy to go through a correction, but they are common events that all long-term investors need to live with. Keep in mind that before those outsized gains in 2019, the S&P 500 was down 13.5% in the fourth quarter of 2019 (with dividends reinvested).

Cruise lines and more

Here’s how the 11 sectors of the S&P 500 performed from the close Feb. 19 — the most recent closing high for the index — and Feb. 28:

And here are the numbers for five companies that Buckingham discussed:

You can click on the tickers for more about each company.

The Prudent Speculator rates all of these stocks a “buy.”

Buckingham is pleased to buy shares of Royal Caribbean Cruises RCL, +0.19%  and Carnival Corp. CCL, -1.20%  at discounted prices, despite the near-term difficulties he cited above.

In its annual 10k report filed on Feb. 25, Royal Caribbean estimated that market penetration for the cruise industry in 2019 was 3.89% in 2019, up from 3.36% in 2015. That‘s based on the number of cruise guests during the year divided by the population. It shows a healthy rate of growth, but also implies that there is tremendous potential for much greater penetration. The 2019 market penetration rate for Europe was 1.41%, and for the Asia/Pacific region was only 0.20%. That last number is where so much opportunity lies, because China and other countries with large populations are seeing millions of consumers begin traveling as they enter the middle class.

Yes, during the coronavirus clampdown it’s easy to forget about long-term demographic trends.

Cruises may be irresistible to many people, not only because of their low cost relative to alternative travel and lodging arrangements, but because cruise ships are very accommodating “if you are in a wheelchair or use an oxygen tank,” Buckingham said.

Both Royal Caribbean and Carnival are held in portfolios managed by Buckingham. Based on the closing prices on Feb. 28, shares of Royal Caribbean had a dividend yield of 3.88% and Carnival had a yield of 5.98%.

Buckingham said these weren’t plays based on price-to-earnings ratios, because earnings over the next year are in question. If there is no earnings growth, “I say that’s great, we’ll take that,” he said.

“You don’t need earnings growth to hold stocks at this level,” with 10-year U.S. Treasury TMUBMUSD10Y, -0.36%  yielding less than 1.15%,” he said.

Buckingham said he likes both J.P. Morgan Chase JPM, +4.66%  and Bank of America BAC, +3.05%  at these levels, after very significant declines for both.

When asked which stock would be number one on his list, he said: “There’s never a number one on my list,” but if forced to name only one company, it would be Walt Disney DIS, +1.98%, whose shares fell 17% between Feb. 19 and Feb. 28.

“It has been punished because it is travel-related, but it is such a high-quality entity,” he said. In addition to the “phenomenal opening” for the Disney+ streaming service, Buckingham cited the company’s ability to monetize its intellectual capital.

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